Abstract:This paper, by using annual surveys of manufacturing firms from 1998 to 2005 in China, first documents a positive correlation between industrial agglomeration and firm size, which is previously found in developed economies. Next, by using the system GMM and instrumental variable estimations, we identify that industrial agglomeration has a positive and statistically significant causal impact on firm size.
Finally, we find that firms are more likely to benefit from locating with
a number of large firms rather than with a large number of firms.